EXCLUSIVE: “Game On!” – Nick Kerigan, SWIFT in ‘The Fintech Magazine’
There are new players on the financial pitch and SWIFT is being tasked to make sure they all get along. Nick Kerigan, its head of innovation, explains how it might help
In the fragmented world of cross-border payments, SWIFT has been the referee for banks by providing rules for moving money since 1973. And, according to its head of innovation Nick Kerigan, the cooperative believes it can still keep order on the pitch as the game changes, with innovations such as tokenised assets and digital currencies coming into play.
As with cross-border money flows, the vision with these is to create unified systems – which will stop competing teams effectively taking their ball home and setting up rival leagues. It helps that bank-owned SWIFT’s systems are deeply embedded in its technology stacks. But there’s no doubt the Belgian-based group has moved its innovation activities up a notch over the past five years.
While this year’s major focus is completing the industry migration to SWIFT’s ISO 20022 data standard, and the launch of SWIFT platform Transaction Manager later in 2022 to give banks straight-through processing of cross-border payments, they are by no means the only game in town. At the same time, Kerigan is responsible for co-ordinating SWIFT’s response to what it calls the ‘frontier trends’, which it identified in 2022 as digital currencies and the tokenised asset markets.
“We need to figure out how we ensure CBDCs don’t become digital islands”
It’s running a pilot scheme for the latter, alongside financial firms Clearstream, Northern Trust and Citi-backed blockchain provider SETL; and in September, SWIFT also announced a partnership with blockchain-platform fintech Symbiont to improve efficiency for corporate actions data.
We asked Kerigan how SWIFT is approaching these new frontiers and what he believes his team can do to provide the best solutions in the future.
THE FINTECH MAGAZINE:You’ve worked in payments for more than 20 years – what’s your perspective on how tokens and digital currencies have evolved over that time?
NICK KERIGAN: People use the phrase ‘we went on a journey’ an awful lot, but that’s genuinely true for the digital assets space. Take the emergence of stablecoins, for example; that provided a foundation for the crypto ecosystem, and people have looked to reuse them in different ways.
They started to see the potential benefits of these technologies and for token-based approaches to securities assets. So, we’re now witnessing the growth of the tokenised assets market, be they native digital assets or existing securities that are being tokenised.
More recently, we’ve seen the rise of digital currencies, as central banks and other institutions started to recognise that, as the economy becomes truly digital, money needs to become truly digital, too. There’s no doubt that one of the most exciting things that’s happening in payments right now is this exploration
of the digital currency space
TFM: Some countries already have central bank digital currencies (CBDCs), others are piloting them. Will they be adopted globally?
NK: If we’d had this conversation 24 months ago, CBDCs would have been an interesting topic but we wouldn’t have thought they would happen any time soon. Now, nine CBDCs are already live, and there are around 14 countries running pilot schemes. That includes China, where a pilot means 100 million people. So it’s happening and there’s a sense within the financial community that CBDCs are inevitable. SWIFT doesn’t advocate for or against CBDCs, but, seeing this growing momentum, we need to consider how it impacts the financial community. And, in particular, how does it impact the world of payments, and cross-border payments?
At a practical level, if I’m in Europe and have a digital euro, how can I make a payment to someone who’s sat in the UK that doesn’t have a digital pound?
Thinking then about SWIFT’s strategy for instant and frictionless cross-border payments, how do we approach this? Given that 80-odd central banks are already experimenting with or developing CBDCs, we need to figure out how we ensure those CBDCs don’t become digital islands. How do they connect with the rest of the world? And how do you ensure the journey we’re going on of making payments ever better cross border can be enabled by CBDCs, rather than inhibited by them?
TFM: Can you tell us what SWIFT is doing to prepare for tokenised assets?
NK: The tokenised assets trend is a really fascinating one because the securities industry is asking how it can take existing securities and use the potential of token technology to achieve some real benefits. For example, we have fractionalisation, whereby a share worth $1,000 can be chopped into 100 tokens of $10 each.
Why would you want to do that? Well, potentially, you can achieve better liquidity. You can also potentially achieve better access to that investment, there will be people who have $10 to trade, but not $1,000. Also, for institutional investors, –you start to look at things such as more sophisticated trading strategies, more diversified risk management and so on. It’s a relatively small market at the moment but major securities clients have come to us and asked how they can take advantage of it, given that, based on some projections, the market could grow to $24trillion by 2027.
As regards the challenges, most of these tokenised assets are being created on new and specific platforms, so if you’re an existing, scaled securities market player you have to consider which platform you are going to integrate with. What will be the costs? And which platform will be the one where most tokenised assets will sit?
That’s why this year we have collaborated with some of our large securities clients, such as Northern Trust and Clearstream, in an experiment to see whether the institutions that interact with SWIFT for securities can also use us to reach those tokenised asset platforms. Can we tokenise an existing security to make a delivery, versus a payment,
transaction on it, and then also de-tokenise it at the end?
“By connecting with new digital asset platforms, we can add value. This means ensuring interoperability between those platforms, through standards and API connectivity”
What that potentially does is give those securities institutions a way of accessing this new market with the integrations being done by SWIFT on behalf of market participants. That way integrations are done once, with SWIFT, rather than done many times with all the securities participants. I think that’s an exciting kind of experiment, and we really like doing these forms of collaborative innovation and working with our clients to figure out new solutions.
Because SWIFT sits across the whole of the financial community, serving some 11,500 banks and corporates, I believe we have a unique perspective, and hopefully we’re able to bring together institutions to collaborate on innovation in a fairly unique way.
TFM: More broadly, what’s the role that SWIFT can play in accelerating the adoption of digital assets?
NK: If you look across digital assets and digital currencies, SWIFT can help by doing things once for the financial community. That means those 11,500 banks and corporates don’t have to repeat processes many, many times. So we will naturally exist in the collaborative innovation space, and we naturally look for challenges that are best solved as an industry, rather than by those individual institutions on their own.
We think, for example, that by connecting with new digital asset platforms we can add real value. This means ensuring interoperability between those platforms, through standards, through API connectivity and so forth. Similarly, we can add value in the digital currency space by ensuring interoperability between digital currencies.
So we want banks connected to SWIFT to fiercely innovate and produce new services, then we can help them tackle the problems and challenges, and find opportunities that are best solved on an industry-wide basis.
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